Climate Tech Trends In 2023

ClimateAngels | Jan 29, 2023

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Climate Tech is becoming an increasingly popular investments option as investors look for safe investments in 2022.

The sector had a strong growth in 2021, with venture capitalists (VCs) investing $41 billion in climate tech startups.

PitchBook (a document with a detailed and persuasive presentation) expects the climate tech market to reach $1.4 trillion in five years. The political and geopolitical developments, such as Russia’s recent interactions with Ukraine and the passage of the Inflation Reduction Act (IRA), have had a significant impact in the climate action efforts.

Electric Mobility has been the biggest kingpin of Climate Tech, last year the sector garnered nearly 50% of the VC investment amount deployed in the sector. Since 2020, $37 Billion have been deployed into the sector. It is the biggest deals of the year included NorthVolt which raised $1.1 Billion and Rimac which raised $ 537 Million.

The rising craze for Clean Energy Investing

One area of interest for investors is Clean Energy. Though recent Russia-Ukraine interactions led to many countries embargoing Russia’s oil and gas, causing them to search for alternatives.

This has sparked an increase in interest towards wind and solar power, as well as large batteries to ensure a stable electricity supply.

As renewable projects become more sophisticated, developers will need software and platforms to manage them. It will lead to growing investor interest in startups with software solutions focused on renewables and grid-scale batteries.

Since 2020, $22 Billion has been deployed into Clean Energy by VCs across the globe. Nuclear Energy Fusion and Fission have attracted the highest capital input in the sector.

Of the 10 biggest Climate Tech deals in 2022, four came from Clean Energy. They included TerraPower ($750 Million), Octopus Energy ($550 Million), Nextracker ($500 Million) Form energy’s ($450 Million) growth rounds.

Climate-tech-venture-funding-for-2022-holoniq

Source: HolonIQ

How about DAC? Does it has good investment returns?

Direct air capture (DAC) is a process that captures carbon dioxide directly from the atmosphere.

DAC is still a nascent technology and there are ample opportunities to improve its efficiency and cut costs. The field’s early stage, coupled with the attractive tax outlook, is expected to drive significant investment.

Carbon Capture’s funding has increased by over 2.5 times in the past year. Climeworks with its $613 Million growth round became the third-largest climate tech deal in 2022.

Is there a buzz in Climate Management Software? Should you invest?

Climate/Emissions Management Software includes software applications that are responsible for managing data, gathering intelligence, and estimating the risk associated with a change in Earth’s climate.

This sector is becoming a staple for investors as most investment asset classes are now subject to climate risks. Notable deals in this segment in 2022 included Ecovadis with its $500 Million growth round.

Green Hydrogen: Is it a Hot Investment for your investing portfolio?

Green hydrogen is also gaining attention as an investment opportunity. The IRA offers a tax credit for “green” hydrogen, which is made using renewable energy sources, making it more cost-competitive with traditional “grey” hydrogen.

The increased focus on green hydrogen is expected to drive investment in the development of technologies and infrastructure to produce and distribute hydrogen using renewable energy sources.

What’s Next?

The climate tech sector is expected to experience continued growth in 2023, driven by a combination of political and economic factors.

However, the invested dollars get disproportionately distributed to sectors within the climate tech domain with a low emission reduction potential.

In the past year, mobility received a whopping 48% of all the capital deployed in the Climate Tech sector while other sectors (Energy, Food Agriculture & Land Use, Built Environment, and Industries) which are responsible for 85% of global emissions received only 52% of the funding.

While decarbonizing mobility is an important part of the decarbonization puzzle, Climate Tech desperately needs companies working on innovations that make up a major fraction of the emissions pie. Hence, the climate tech space is a hot bed for investors who would love to see a greener, sustainable future for everyone.